The following are a selection of charts from UBS that show the state of the Singapore property market.
- The housing market remains weak as cooling measures continue to bite
- Pricing power of developers are gradually weakening
- Sales volume of new condominiums are weakening
- Developers may have to start calibrating their pricing expectations as there are gradually a fewer number of buyers willing or able to pay high asking prices
- Highest number of condo completions expected in 2021 and 2022. Pressure on rents expected to continue till then.
Prices of new condominiums across the island have been on a slight down and flattish trend.
New condominiums in the prime districts in the country are under greatest pressure, suffering a sharp drop in the second half of 2018.
Condominiums in the mid and mass market segment as holding up slightly better, but have been relatively flat for the last 5 years.
Price trends in the resale segment haven’t fared much better, with movement in the last 5 years having been relatively flat.
The premium of new over resale condominiums have been falling in the prime segment to its long-term average of approximately 40%.
For example, this means that a prime condo costs S$1,400 psf while a resale condo costs S$1,000 psf.
The peak pricing for new condominiums was reached in 2007 which was when there was a frenzy of sales on the back of the global financial bubble.
Subsequently, prices of new and resale condominiums fell as the bubble burst, in what is now known as the global financial crisis.
As the price of new condominiums fall faster relative to resale units, it may be an opportune time for investors to start hunting for new condominiums as the tide turns in their favour.
Singapore’s house prices are highly correlated with GDP growth.
We know that the Singapore government closely monitors GDP growth, and reading the policy directions of the government could provide insights into how house prices could move.
However, the government’s macro-prudential policies in recent years could throw investors off.
For example, strong GDP growth that results in strong house price growth could result in the government implementing cooling measures, that in turn depress house prices. This is the opposite of what we would expect when there is strong GDP growth.
On the opposite side, when GDP growth is weak, we expect house price growth to be weak, but the government may lift cooling measures. This provides support for house prices.
At the end of the day, the historical relationship generally holds true, and having a sense of GDP growth in future could provide insight as to how house prices could turn out.
Sales volume of new condominiums have fallen from a peak in 2013, when the government introduced the first of many cooling measures that are still in effect today.
As long as the government cooling measures remain, sale volume is anticipated to remain weak.
As it became pricier to buy new condominiums, investors and buyers shifted their attention to the resale market, resulting in a pick up of sales volume which is now just shy of its peak in 2013.
Rents have fallen as the government tightened the foreign worker and expatriate inflow into the country.
This came about as the local populace complained about the number of foreigners bringing in their customs and habits, resulting a weakening of the social fabric of Singapore.
At the same time, the huge inflow of foreigners in the past put a strain on public infrastructure and pushed house prices up.
At the same time as the inflow reversed, the government ramped up construction of public housing to keep prices under control.
Combined, the reduction in worker inflow and increase in housing supply pushed rents down.
Rents are expected to remain under pressure as both the foreign worker and housing policy of the government is not expected to change anytime soon.
Gross yields have fallen over the last 10-20 years as price increases outpaced rent increases.
Residential yields are now at approximately 3% compared to 4% in the early 2000’s.
With rents under pressure, and prices continuing their slow but steady upward climb, yields are expected to stay in the 3% range for the foreseeable future.
Real estate continues to be a popular investment asset class for young and old alike, and this is likely to put continued downward pressure on yields.
Based on the supply outlook, there is likely to be a peak in physical completions (TOP) in 2021 and 2022, when the developments that were sold in 2018 and 2019 are complete.
This would portend some pressure on rents during that period, when investors compete to rent out their units.